By taxclubadmin 
Sport, not-for-profits and the income tax exemption in New Zealand and Australia
Not-for-profit organisations engage in a range of activities, including sport. Government supports these entities through various measures, notably income tax exemptions. Some not-for-profit organisations receive special designation as charities under legislation and under common law and statutory definitions must have a charitable purpose that benefits the public.
The status of sport according to charities law and taxation law differs between New Zealand and Australia. Charities law and taxation law are interconnected in New Zealand, with the income tax exemption in the Income Tax Assessment Act 2007 (NZ) being dependent on being a registered charity under the Charities Act 2005 (NZ). New Zealand law requires amateur sports to be a registered charity. Professional sports are excluded from the definition of a charity and hence the tax exemption. However, Australian law does not require sports clubs and leagues to register as charities under the Charities and Not-for-profits Commission Act 2012 (Cth). Instead, an income tax exemption to all sports is provided by section 50-45 of the Income Tax Assessment Act 1997 (Cth).
Our article contends that the income tax exemption in Australia for professional sport is no longer required due to those clubs and leagues raising significant revenue. For the two most popular sports, namely the National Rugby League (NRL), which raised $744 million in revenue in 2024 and the Australian Football League (AFL), which raised over $1 billion in 2024, why are they still treated as income tax exempt organisations? This article will review the taxation law in Australia that provides a tax exemption to financially large sporting bodies and compare this with the New Zealand approach to amateur sporting bodies. We argue that Australian law should limit the tax exemption to amateur sports that are charities under a revised Charities Act 2013 (Cth).
Sport and New Zealand charities and taxation law
New Zealand legislation has altered the common law’s position that the promotion of sport is not charitable (see Re Nottage [1895] 2 Ch 649 and Peterborough Royal Foxhound Show Society v Commissioners of Inland Revenue [1936]). According to section 5(2A) of the Charities Act 2005 (NZ), the promotion of amateur sport can be a charitable purpose. Thus New Zealand law differentiates between amateur or community sports clubs and leagues and professional sport. Under section CW 41(5) of the Income Tax Assessment Act 2007 (NZ), charities are exempt from income tax if they are a ‘tax charity’, which is a trust, society or institution that is registered as a charitable entity according to the Charities Act 2005 (NZ). Sections CW 41 and 42 of the Income Tax Assessment Act 2007 (NZ) exempts income that is derived by a charity that is established and maintained exclusively for charitable purposes and is not carried on for the financial profit of any individual.
Furthermore, section CW 42(1) states that income derived from a charity operating under the Charities Act 2005 (NZ), that conducts its charitable purposes in New Zealand, qualifies as a tax charity. As such, no person with control over the business can direct an amount derived from the business to the benefit of another person other than the charitable entity. For sports clubs and leagues to be eligible for the income tax exemption, the Department of Inland Revenue requires that it must be established to promote an amateur game or sport, the sport is for the general public’s recreation or entertainment, no barriers exist to watching or participating and the funds of the entity are not used for the private benefit of owners, shareholders, members or beneficiaries.
Sport and Australian taxation law
Clubs or leagues established to encourage or promote a game or sport are exempt from income tax under the sports exemption in section 50-45 of the Income Tax Assessment Act 1997 (Cth). The exemption was first implemented in 1952 when the Income Tax and Social Services Assessment (No 3) Act 1952 (Cth) introduced a new section 23(g) of the Income Tax Assessment Act 1936 (Cth) that exempted from income tax societies or clubs established for the encouragement or promotion of an athletic game or sport. For the exemption to apply under section 50-70(1), the club or league must not carry on business for the purpose of profit or gain for members and they must incur expenses and pursue its objectives principally in Australia. In addition, section 50-70(2) of the Act requires exempt entities to comply with their governing rules and apply income and assets solely for the purpose for which it was established, that is, the promotion of sport.
Should Australia follow New Zealand and limit the taxation exemption to amateur sports that are charities?
New Zealand grants charitable status to amateur sports clubs and leagues that promote sport and the exemption from income tax is based on an entity being a registered charity under the legislation. Such entities must have a charitable purpose that benefits the public. This raises two potential reforms in Australia. First, should sports clubs and leagues be treated as charities? Second, if sport is a charity, then should charitable status only apply to amateur sport and not professional sport?
The section 50-45 tax exemption for sports could be abolished and the Charities Act 2013 (Cth) amended to allow amateur sports clubs and leagues to be registered as charities. Such a change would treat sports like charities and require sports to have a public benefit. This would replicate the common law and statutory position of charities and require amateur sports to do more than promote a sport or game. As professional leagues like the AFL and NRL would lose their not-for-profit status and income tax exemption, such a reform is likely to meet some resistance from the two leagues. However, the legal approach in New Zealand demonstrates that the distinction between amateur and professional sport in tax and charities law is a reform that is worthwhile pursuing.
The tax exemption for not-for-profits sports is no longer justified on the basis of assisting professional sport. Wealthy professional sports leagues and clubs have evolved from the small, localised entities that existed when the sports tax exemption was introduced in 1952.
This article is based on a publication by the authors in the New Zealand Journal of Taxation Law and Policy, 31 pp. 203-230.